Money Managment

The only way to stay alive in the trading buisness is to always have constant capital for making your trades possible.

Over 90 percent of traders blow up their accounts because they are missing the most important element. MONEY MANAGMENT

Pick a correct money managment plan

Never risk more than 2% of your capital on a single trade

We consider success of a forex trader is directly dependent on money managment. Most beginner traders think that they can be millionaires with 1000 USD starting capital. That is simply not true. Huge leverage from brokers contributed to this idea and led to thousands of blown up accounts in a matter of days.

 

Let us examine some examples on a real traders perespective.

We decide to open a real account after trading DEMO account successfully. We fund our account lets say with 5000 USD. After that we have to make a plan and decide how many trades we will make for the day. Then we will find the 2 percent of our account which is 5000/100*2=100. So if we decide to open a trade we should never risk more than 100 USD. This way even with some losses our account will survive longer.

Now lets check our RISK/REWARD ratio. It is simple to understand that more pips equals to more profits or more loss.

Back to our real trading example we decide to open a trade.

To win we must make odds to our favour so we chose to set TAKE PROFIT with more pips than the STOP LOSS. Ideally we must find spots with our technical analysis. 1:2 RISK/REWARD is a good way to start.

On the first example we will open a trade with 20/40 pips risk/reward. In our daily plan we have decided to take max 5 trades in total. So the stop loss should be around 100 USD and profit around 200 USD.

Necessary condition to sustain our account is winning at least 2 of 5 trades with a correct strategy. Even with 3 losing trades we will have 100 USD profit.

As we see our first trade was a loss. Dont worry as it is in our plan. Remember goal is 2 winners.Read about our trading phycology page in case you are not feeling ok with losing trades.

Lets move on our next trade.

Like all good traders we obey and not deviate our plan and stradegy.

Second trade is a winner!!! One more to reach our daily goal.